|COURT:||Bombay High Court|
|CORAM:||A. K. Menon J., M. S. Sanklecha J|
|SECTION(S):||115JA, 115JB, 4|
|CATCH WORDS:||Book Profits, capital vs. revenue receipt, consistency principle, mesne profits|
|COUNSEL:||Dr. K. Shivram|
|DATE:||June 6, 2016 (Date of pronouncement)|
|DATE:||July 8, 2016 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|Mesne profits (amount received from a person in wrongful possession of property) is a capital receipt and not chargeable to tax either as income or as "book profits" u/s 115JB. As the department has implicitly accepted Narang Overseas vs. ACIT 100 ITD (Mum) (SB), it cannot file an appeal on the issue in the case of other assessees|
The High Court had to consider two questions in an appeal filed by the Department:
(a) Whether on the facts and in the circumstance of the case and in law, the Tribunal was correct in holding that mesne profits are capital receipts in the hands of the assessee and not revenue receipts chargeable to tax?
(b) Whether on the facts and in the circumstance of the case and in law, the Tribunal was correct in holding that mesne profits, can not be part of book profit u/s. 115JB, as it was held as capital assets?”.
HELD by the High Court dismissing the appeal:
(i) The Tribunal has held that the mesne profits received by the Assessee for the unauthorized occupation of its premises from Central Bank of India is a receipt of capital nature and thus not taxable. To reach the above conclusion, the impugned order placed reliance upon the decision of Special Bench of the Tribunal in Narang Overseas Pvt. Ltd., v/s. ACIT 100 ITD (Mum) S.B. The issue before the Special Bench in Narang Overseas Pvt. Ltd. (supra) was whether the mesne profits received by an assessee is revenue or capital in nature. The Special Bench, in its order placed reliance upon the definition of mesne profits in Section 2(12) of the Code of Civil Procedure, 1908 which reads as under:
“Mesne profits of property means those profits which the person in wrongful possession of such property actually received or might with ordinary diligence have received therefrom, together with interest on such profits, but shall not include profits due to improvements made by the person in wrongful possession.”
On the basis of above, it held that any amount received from a person in wrongful possession of its property, would be mesne profits and it is capital in nature.
(ii) We find that the issue before the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd was to determine the character of mesne profits being either capital or revenue in nature. The Special Bench of the Tribunal in Narang Overseas Pvt. Ltd held that the same is capital in nature. There is no doubt that the issue arising herein is also with regard to the character of mesne profits received by the Assessee. In this case also, the amounts are received by the Assessee from a person in wrongful possession of its property i.e. after the relationship of landlord and tenant has come to an end. Once the Special Bench order of the Tribunal in Narang Overseas Pvt. Ltd has taken a view on the character of mesne profits, then unless the Revenue challenges the order of the Special Bench of the Tribunal it would be unfair of the Revenue to pick and choose assessees where it would follow the decision of the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd. The least that is expected of the State which prides itself on Rule of Law is that it would equally apply the law to all assessees’s.
(iii) We make it clear that we have not examined the merits of the question raised for our consideration. We are not entertaining the present appeal on the limited ground that the Revenue must adopt an uniform stand in respect of all assessees. This is more so as the issue of law is settled by the decision of the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd., (supra). The fact that even after the dismissal of its Appeal (L) No.1791 of 2008 for non-removal of office objections on 25th June, 2009, no steps have been taken by the Revenue to have the appeal restored, is evidence enough of the Revenue having accepted the decision of the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd. Thus, the question as framed in the present facts does not give rise to any substantial question of law.
(Director of Income Tax (International Taxation) v/s. Credit Agricole Indosuez ITR 102 377 followed)